At the Wellhead: Repsol’s flop in Cuba raises plenty of questions about country’s oil future

Repsol has drilled what is known in the business as a “duster,” a dry hole. It was an extremely expensive duster, and it has brought into question whether Cuba will be the big oil producer that some have envisioned. In this week’s At the Wellhead column from Oilgram News, Leslie Moore Mira discusses the fallout from Repsol’s setback.

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Official Cuba wore a game face after Repsol’s recent dry hole off the country’s northern coast, but the company’s announcement to stop investing there must have been a cold slap to the scrappy Caribbean nation pining for a big find as it undergoes glacial but inexorable political change.

State-owned oil company Cupet eventually acknowledged the empty find this month, but it continues to tout a high reserves potential. Repsol’s results “in no way” reverses the outlook for the zone, “one of the key oil-producing basins with a high potential for discovering hydrocarbon reserves,” state-owned Cupet said.

A retreat by Repsol, which one analyst estimates has spent between $100 million-$150 million in its 12 years in Cuba, marks a second high-profile departure from Cuba. Brazilian-owned Petrobras also hightailed it, deciding in late 2010 not to renew an exploration concession after its own dry well in Cuba’s Strait of Florida.

Repsol spokesman Kristian Rix said June 15 that Repsol could not give an estimate for Cuba spending. Referring to earlier comments by Repsol CEO Antonio Brufau, Rix said “it is very unlikely that we will drill another well.” The company also encountered a noncommercial well in 2004 offshore Cuba.

Outsiders are parsing whether Repsol’s Cuba pullout is driven by geopolitics or geology.

“I’m sure Repsol’s decision to leave was based more on geopolitical factors than geoscience,” said Lee Hunt, an independent consultant and the former head of the International Association of Drilling Contractors.

Citing a backlash from Florida lawmakers against oil exploration south of the US state, Hunt said Repsol likely wanted to zero in on less contentious areas. “There appears to be a lot of behind-the-scenes pressure to sort of fold in their cards” and leave Cuba,” he said.

Pinon notes higher business costs in Cuba, subject to the US embargo against the nation, and Repsol’s corporate self-analysis in the wake of having its Argentine assets seized by the South American government in April. Angola, Brazil, and US prospects likely beckon more than Cuba, he said.

Gerardo Arreola, a Havana-based reporter with Mexican daily newspaper La Jornada, said personnel flown in for the Repsol well assiduously dodged the use of US products — down to laptops. Like others, he’s baffled about Repsol’s decision not to give it at least one more exploratory shot. After “having spent a lot of time and resources to get the rig there, why didn’t they try to drill another well?” he said. But even in private conversations, Cupet officials are bullish on Cuba’s potential for hydrocarbon prospects despite a series of noncommercial finds, Arreola said. A Cupet official declined to comment to Platts.

Asked if Repsol’s freeze on Cuba exploration is shaped by geopolitics or geology, Rix said: “Definitely geology,” and did not elaborate further.

In a report issued last week, the US Geological Survey estimated that the North Cuban Basin holds an average 4.6 billion barrels of oil resources, a slight change from the 2004 estimate of 4.595 billion barrels of oil. Christopher Schenk, a lead geologist at the US Geological Survey, said it’s too soon to say if Cuba’s oil potential is dimmer after Repsol’s setback.

“It’s just a couple of wells … I don’t think that condemns offshore Cuba,” Schenk said, declining to say how many more additional wells must be drilled before his view changes.

Repsol’s bust is “just a minor setback in terms of the big picture,” said John Hall, a business development geophysicist with UK-based survey company Spectrum. Hall said he is optimistic about Cuba and compares prospects to the makings of an oil boom.

“If this time next year every single well is dry, that might be cause for concern,” Hall said. But “it’s early days yet … it’s like the start of the gold rush,” in the Caribbean island.

Concession-holders will track Petronas’ exploration. Petronas and partner Gazprom are drilling in terrain south of the Florida Strait, heading into the Gulf of Mexico off western Cuba. Venezuela-owned PDVSA, which holds four blocks, will later sublease the Eni-owned Scarabeo-9 rig from Repsol and drill in ultra-deep waters in the Yucatan Channel near the Cuba-Mexico border and south of the Petronas blocks.

Neither shares Repsol’s deepwater drilling expertise, Pinon thinks, adding that could pose operational snafus in case of a spill. While Repsol and US government officials held high-profile meetings over the Spanish multinational’s oil spill response preparedness, there has been no similar buzz to hold talks with Petronas or PDVSA, Pinon said. Other offshore concession-holders include China’s CNPC, Angola’s Sonangol, Indian-owned ONGC, and PetroVietnam.

“Just because nothing happened in the first well should not give us a false sense of security,” Pinon said.